The U.S. Dollar dropped against a basket of major currencies today following the announcement by major central banks of interest rate cuts in an attempt to curb the hemorrhaging of the global financial markets. According to analysts, the current financial crisis is the worst experienced since the crisis of the 1930’s.
The Federal Reserve has reduced its key Federal Funds interest rate to 1.5%, a reduction of 50 basis points. The European Central Bank and central banks in Switzerland, Sweden, Canada, China and Britain also cut their interest rates in a coordinated effort to address the financial crisis.
Before the central banks started coordinating their efforts, most currency investors had moved out of risky assets to high yielding assets such as the Japanese Yen, which rose to multi-year highs versus the Euro.
The action by the central banks will certainly mark a turning point with regard to investors’ approach to risk. It may be the beginning of further drop in the U.S. Dollar, which had previously gained from repatriation
On October 8, 2008 at 1206 GMT, the U.S. Dollar had dropped by 0.6% versus a basket of six currencies to 80.602 DXY. The U.S. Dollar recovered slightly against the Japanese Yen and traded at100.73 Yen.